Stephen S. Wang, Jr. - Page 21

                                       - 21 -                                         

               income which he is required to return, even though it                  
               may still be claimed that he is not entitled to retain                 
               the money, and even though he may still be adjudged                    
               liable to restore its equivalent”.  * * *  [Citation                   
               omitted.]                                                              
               The requirement to report embezzled funds for tax purposes             
          even though the embezzler/taxpayer may not have had a claim of              
          right to the funds was analyzed in Yerkie v. Commissioner, 67               
          T.C. 388 (1976).  In that case, an embezzler failed to meet the             
          first qualification of section 1341; i.e., the embezzler did not            
          have a claim of right to the embezzled funds.  Id. at 392.  We              
          agree with respondent that with respect to embezzlement gains it            
          is well established that section 1341 is not available.  It does            
          not necessarily follow, however, that taxpayers with illegal                
          income, per se, are not entitled to use section 1341.  With                 
          respect to each taxpayer it would be necessary to decide whether            
          his circumstances meet the requirements of section 1341.                    
          Embezzlers do not meet the claim of right requirement of section            
          1341 because there was no claim of right, not because the income            
          or gain was illegally obtained.  Section 1341 applies only if the           
          taxpayer appeared to have an unrestricted right to the income in            
          the year of receipt.  Sec. 1341(a)(1); sec. 1.1341-1(a)(1),                 
          Income Tax Regs.                                                            
               Here, petitioner’s and Mr. Lee’s activities were illegal in            
          every respect.  Petitioner’s act of obtaining the insider                   
          information, his sale of insider information to others, and the             





Page:  Previous  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  Next

Last modified: May 25, 2011